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B.C. consumers face huge Hydro rate increases after election

All parties face potential jump in costs to consumers after years of intervention

BC Hydro has rolled out its smart meter technology, but other new projects have significant costs as well.

Photograph by: bill keay
, Vancouver Sun

VANCOUVER — Four issues are likely to dominate when the political debate in the next few weeks turns to BC Hydro.

The big issue for consumers is the potential for a big jump in electricity rates regardless of who wins the next election.

At present, Hydro charges customers less than what it requires to cover the cost of projects such as its $930 million smart meter initiative, billions in dam and transmission system upgrades, and the $5 billion mountain of debt that awaits ratepayers in so-called deferral accounts.

Two years ago the auditor general warned that use of the accounts effectively defers to future ratepayers electricity costs that should be borne by present ratepayers.

Big rate increases are nothing new for Hydro customers. Industrial rates rose 100 per cent through the 1970s and 200 per cent through the 1980s. By contrast through the past 22 years they’ve gone up 45 per cent.

Among stakeholder groups such as B.C.’s largest industries, Hydro’s mounting debt is considered so serious a problem that they’re suggesting the next government will absorb billions of Hydro’s debt rather than passing it directly along to Hydro customers.

“Some deferrals are legitimate in principle but others are postponing into the future the cost of paying for today’s and yesterday’s consumption,” Jim Quail, legal counsel for COPE 378 – the union local representing Hydro inside workers, warned. “If they keep on doing that, it’s as if the light keeps receding at the end of the tunnel.”

Hydro supports the province’s major industries by providing electricity at some of the lowest rates on the continent, and this year is expected to deliver an annual dividend to the treasury in the range of $600 million – compared to the roughly $500 million Hydro will pay in interest this year on its existing debts.

That ranks it third among Crowns for delivering revenue to the province, behind B.C. Lottery Corporation ($1.1 billion) and the liquor distribution branch ($906 million).

What makes Hydro exceptional is that nearly everything it does has political ramifications. The NDP government during the 1990s and the Liberals under both Christy Clark and Gordon Campbell opted at times to make major Hydro policy decisions in-cabinet rather than leave them up to the B.C. Utilities Commission.

The NDP under Mike Harcourt and Glen Clark effectively froze Hydro rates for almost a decade. The Campbell Liberals heavily promoted private sector power development to support Hydro’s grid while Clark and Energy Minister Rich Coleman overrode the commission to slash last year’s rate hike from 9.73 to 3.91 per cent, and capped this year’s increase at 1.44 per cent.

That’s well below what’s needed to cover Hydro’s spending on infrastructure, according to a 2011 government study. That study suggested Hydro could find cost savings in its operations — such as staff cuts and fewer “gold standard” engineering projects — but concluded that even aggressive cost cutting would necessitate a rate hike of 3.9 per cent this year.

According to NDP energy critic John Horgan, Hydro is also locked into contracts with independent producers who will be paid more for power supply than the same power would fetch if it was sold into the western North America electricity trading market. That could cost Hydro $300 million this year, Horgan said.

“The situation is dire and they current government just doesn’t seem to want to acknowledge it,” Horgan said. “They in fact cancelled a (BCUC) rate hearing and imposed an artificially low 1.4 per cent rate increase when they knew full well there was no chance that would allow Hydro to meet its obligations.”

Neither Horgan nor Coleman would suggest the amount of rate increase needed to get Hydro on stable footing.

That decision would rest with the utilities commission under an NDP government, Horgan said.

“If you don’t have a rigorous debate about these issues in open court, basically, with cross examination of witnesses then you are not going to get a true reckoning of the state of affairs at BC Hydro, and that is what has been missing,” he said.

Coleman noted that BC Hydro has among the cheapest electricity rates for North American electrical utilities.

The province, he added, has taken actions to uncover cost savings with the Crown corporation — estimated at about $300 million per year — enabling the province to keep a lid on rate hikes.

Coleman also pointed to the smart meter program as a source of cost savings — one of the promised benefits of digital metering is its ability to detect power theft.

“The smart meter program pays for itself and returns about half a billion dollars over the life of the project, over the next 15-20 years, to ratepayers. It is saving us about two per cent on the rates right now,” Coleman said.

Richard Stout, executive director of the Association of Major Power Customers of B.C., said “it’s obvious” from BC Hydro’s most recent service plan that the Crown corporation has signalled to government that “they need to continue with their double digit rate increases for the next few years.”

“The new government, whoever it is when the come in, has got to make some fundamental changes to the way BC Hydro is planned, managed, regulated, and the way the shareholder — the government itself — behaves,” Stout said.

“There used to be a time when interveners could discuss BC Hydro’s plans and expenditures in front of the commission and get the (proposed) rate increase reduced by finding more cost effective and better approaches, and by demonstrating that not everything BC Hydro wanted to do was strictly necessary.”

Stout’s association, which is comprised of Hydro’s major industrial customers, has calculated that rates may have to rise 10 per cent annually for the foreseeable future in order to clear out deferred debt as well as finance new infrastructure. It may be more than customers can handle, he said.

“In normal circumstances a shareholder might have to take that as a writedown,” Stout said. “I would suggest the new government coming in may very well be able to write them off, take them as a writedown, as not recoverable.”

The B.C. Public Interest Advocacy Centre, which intervenes on behalf of the BC Old Age Pensioners Organization at Hydro rate hearings, is anxious for more public examination of Hydro’s mega-projects — such as smart meters — in front of the utilities commission.

“When you take away that kind of oversight you lose the big picture view of what the impact will be on rates,” Leigha Worth, BCPIAC executive director said. “You just get a snapshot of that one thing, and you lose sight of the impact on ratepayers.”

Worth said the advocacy centre is particularly concerned about the impact a series of rate jumps would have on Hydro’s fixed income customers. They’re hoping the next government will give consideration to ‘lifeline’ rates that would freeze electricity costs for those who would otherwise have to make a “heat or eat” decision.

The BC Green party platform calls for a public inquiry into the smart meter program, and the operations of BC Hydro generally.

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